Cryptocurrency exchange Gemini and its lending arm Genesis have jointly requested a judge to dismiss a lawsuit brought against them by the U.S. Securities and Exchange Commission (SEC) regarding their Earn product. The legal action by the SEC alleges that the Earn program involved the sale of unregistered securities and violated disclosure requirements. However, the defendants firmly contest these allegations and argue that the lawsuit is baseless.
Representing Gemini, lawyer Jack Baughman expressed his pride in representing the exchange and stated that he, along with the legal team from JFB Legal, had filed a motion to dismiss the “ill-conceived” SEC lawsuit. Baughman pointed out that the SEC’s claim that the contract establishing the Earn program was itself a security is unfounded. Even if that assumption were true, he argued, the SEC would still need to demonstrate that the contract was actually sold, which according to Baughman, never happened.
1/ I and the @JFBLegal team are proud to represent @Gemini. Today we filed our motion to dismiss the @SEC’s ill-conceived lawsuit against Gemini and Genesis relating to the Earn program.
— Jack Baughman (@JackBaughman27) May 26, 2023
To bolster their case, both Gemini and Genesis submitted briefs supporting the argument that the Earn contract should not be classified as a security. Baughman shared the briefs filed by Genesis and Gemini, emphasizing that the central point is that the contract was never sold. Questions regarding the seller, buyer, price, and the ability to resell the contract were raised, making it evident that no sale had taken place. Baughman described this point as “simple but powerful.”
Complicating matters further is the ongoing bankruptcy of Genesis. Baughman acknowledged that the SEC’s lawsuit is prolonging the process of recovering assets from the Genesis bankruptcy, making it even more challenging to compensate Earn users fully. The Genesis bankruptcy has had a cascading effect, impeding Gemini’s efforts to secure the funds owed to former Earn users. Recently, Gemini disclosed that Genesis’s parent company failed to make a payment of $630 million, exacerbating the financial strain.
The SEC initially filed charges against Gemini and Genesis on January 12, accusing them of offering unregistered securities and skirting disclosure requirements. Genesis’ lending arm subsequently filed for bankruptcy on January 19, compounding the complications faced by both companies.
The Earn users, who were owed up to $900 million in January, have been caught in the crossfire of these legal and financial entanglements. The current legal battle between Gemini, Genesis, and the SEC is poised to have a lasting impact on the resolution of the bankruptcy proceedings and the ability to reimburse the affected Earn users.
As the case unfolds, it remains to be seen how the court will respond to the motion to dismiss and the arguments put forth by Gemini and Genesis. The outcome of this lawsuit will not only shape the future of these companies but also have wider implications for the cryptocurrency industry, particularly concerning the classification of digital assets and the regulatory framework that governs them.
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